Buying Our First House: To Stretch or Not to Stretch?

Definitely on the fixed-interest mortgage. That's part of what I was referring to in terms of getting just a standard loan, nothing fancy. (With fancy loans we could qualify for much more yet.)

In that case, go for it!

More on that PMI, which I admit to almost being a fetish with me: yes, you can get it removed when your equity later equals 20%. You will definately have to have the home reappraised to do it. Whether this involves entirely new financing (at market rates), or just the cost of appraisal, I don't know.

Thanks, roger, that's good to know.

Go for it, eh? Hmmm....!

As far as getting rid of the PMI - all you need is a new reappraisal. Did myself a few years ago. No refinance is needed.

House prices don't always go up. On my street there are people living in houses they bought in 1992 - at the peak of the last market surge. Their houses are not yet valued at what they paid back then. The housing market drop in 1994 fixed them, but good. The 18% interest rate they got stuck with did the rest of the damage. I bought in 1997. My house is now valued at about 2x what I paid. There are no guarantees on the market or interest rates.

I made the upper limit on what I was willing to pay 30% less than the bank said I could handle on my income. I'm glad I did. There is always the potential of ugly surprises when you own a home.

The agent I had was great - she said i.d. the top 3 things that matter - and don't waffle on those. For me - that meant 1) walking distance to public transit, 2) a driveway, and some specific electrical system requirements. I ended up with a 3-bedroom house meeting my requirements - and my mortgage is less than my rent was on a basement, 1 bedroom apartment.

Good luck!

Thanks, ehBeth!

(btw have you noticed how colorful threads are where we go back and forth? We kinda coordinate these days...)

I tend to agree with roger. (Cheesy nerd disclaimer: Unless X is negative, or very, very small compared to monthly income.) I thought "stretched" means much more stretched than that.

As some of you know, I've received my Green Card lately, and I plan to move to America within the next year. As a side effect of this, I have read up a lot about what the best practices are in America with regard to money management. In general, I found that the most helpful online resources are www.money.msn.com and www.money.cnn.com. I especially like CNN's Money 101, which addresses many of the questions you are facing (buying a house, saving for retirement, and saving for children's college education). After having worked through the Money 101 tutorial, I felt much more on top of the tradeoffs and choices you have to make about personal finances.

One sensible-sounding rule of thumb I found on one of these sites is that if you're not sure what the best tradeoff between saving and consumption is, start with the minimum amount of money you have lived on, save half of the pay raise relative to that baseline and spend the other half. I've applied this rule to my own income during the last half year and it feels like a workable yet prudent compromise. (Whether it really is, only time will tell of course.) Anyway, I thought you may find it helpful to check your budget against this rule of thumb to see how high mortage payments can be until they conflict with a sensible rate of saving.

Good luck!

PS: It's just occurring to me that sites like the above give 1/4 - 1/3 of net income as the standard upper limit for rent / mortage payments. I guess that's the more appropriate sanity check here.

Thanks for the resources, Thomas! Yep, I also have a really good book about buying a house -- THICK! But very useful -- but always like getting some bdtd advice from real people, too.

Oh and X isn't negative but it is fairly small, hence the hyper-frugality -- nonetheless, having TWICE that much means that after expenses we'd have a fair amount of gravy.

We bought our 1st house about a year and a half ago--here are a few tricks we learned:
* in our case, the price range that the bank said we could afford was higher than we felt comfortable with; ultimately, the house we bought was $20K below the bank's lower number, and that was a good thing--a little bit of flexibility in your budget is essential. (My wife's car was nearly totaled by a hit-and-run driver 3 months after we bought the house--it was definitely good we hadn't shopped in the high end of the bank's range.)
* regarding PMI: our downpayment was slightly less than 20%, but we avoided PMI by splitting the mortgage: we took one mortgage for ~79% of the house's value at a good interest rate (30 yrs/~6%), then took a 2nd, higher-rate mortgage for the remaining 6 or 7% of the house value (20 yrs/~8.3%). We then made extra payments on the high-rate mortgage and paid it off in ~1 year. We saved quite a bit of money relative to what we would have paid in PMI had we used one mortgage for the whole loan.
* definitely go with a buyer's agent. If you know people in the Columbus area, ask them to recommend a realtor to use as a buyer's representative. There is typically no cost to you for an agent's service, and a licensed real estate agent may find deals that you'll never see online or in the classifieds. Our agent showed us 4 or 5 houses to get a feel for what we liked, then found the perfect home for us in our price range.

Great advice, lab rat, thanks! The two different loan thing is especially interesting, since we will be making a big jump in total income. What we have available NOW for a downpayment is OK but not great, but if we buy a reasonably-priced house, we will have enough MORE coming in monthly that we can make serious payments.

Interesting!